Johnson Co. Ltd. make and sell two product Q and Z, each of which passes through the same automated production operations. The following estimated information is available for period 1: Product unit data Direct material cost Variable production overhead cost Overall hours per product unit(hours)0.25 0.15 Production/sales of product Q and Z are 120,000 units and 45,000 units respectively. The selling price per unit for Q and Z are Ghc 60 and Ghc 70 respectively Maximum demand for each product is 20% above the estimated sales levels. Total fixed production overhead cost is Ghc 1,470,000. This is absorbed by product Q and Z at an average rate per hour based on the estimated production levels. Required: Using net profit as a decision measure, show why management of Johnson Co. Ltd. argues that it is indifferent on financial grounds as to the mix of product Q and Z which should be produced and sold and calculate the total net profit for the period. One of the production operations has maximum capacity of 3075 hours which has been identified as identified as a bottleneck which limits the overall production/sale of product Q and Z. The bottleneck hours required per product unit for Q and Z are 0.02 and 0.015 respectively. All other information detailed in (a) still applies Calculate the mix (units) of products Q and Z which will maximize net profit and the value (GHC) of the maximum profit. The bottleneck situation detailed above still applies. Johnson Co. Ltd. has decided to determine the profit maximizing mix of product Q and Z based the Throughput Accounting principle of maximizing the throughtput return per production hour of the bottleneck resource.
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Johnson Co. Ltd. make and sell two product Q and Z, each of which passes through the same automated production operations. The following estimated information is available for period 1:
Product unit data
Direct material cost
Variable production overhead cost
Overall hours per product unit(hours)0.25 0.15
Production/sales of product Q and Z are 120,000 units and 45,000 units respectively. The selling price per unit for Q and Z are Ghc 60 and Ghc 70 respectively
Maximum demand for each product is 20% above the estimated sales levels.
Total fixed production overhead cost is Ghc 1,470,000. This is absorbed by product Q and Z at an average rate per hour based on the estimated production levels.
Required:
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Using net profit as a decision measure, show why management of Johnson Co. Ltd. argues that it is indifferent on financial grounds as to the mix of product Q and Z which should be produced and sold and calculate the total net profit for the period.
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One of the production operations has maximum capacity of 3075 hours which has been identified as identified as a bottleneck which limits the overall production/sale of product Q and Z. The bottleneck hours required per product unit for Q and Z are 0.02 and 0.015 respectively. All other information detailed in (a) still applies
-
Calculate the mix (units) of products Q and Z which will maximize net profit and the value (GHC) of the maximum profit. The bottleneck situation detailed above still applies. Johnson Co. Ltd. has decided to determine the profit maximizing mix of product Q and Z based the Throughput Accounting principle of maximizing the throughtput return per production hour of the bottleneck resource.
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